British American Tobacco Regulatory News (BATS)

1 Mar 2005 07:03

British American Tobacco PLC01 March 2005 1 March 2005 PRELIMINARY ANNOUNCEMENT - YEAR ENDED 31 DECEMBER 2004 SUMMARY 2004 2003 Change Operating profit before goodwill amortisation and exceptionals £2,830m £2,781m +2%Pre-tax profit £1,886m £1,567m +20%Adjusted earnings per share 75.83p 69.21p +10%Dividends per share 41.90p 38.80p +8% • Operating profit, before goodwill amortisation and exceptional items, was 2 per cent higher at £2,830 million. The results were adversely affected by sterling average rates strengthening against almost all currencies. At comparable rates of exchange, operating profit, before goodwill and exceptional items, would have risen by 7 per cent. This reflected the benefit from the ETI acquisition and a good performance in all regions except America-Pacific. • Group volumes, including make-your-own cigarette "stix", grew by 8 per cent to 853 billion, mainly due to additional volumes from acquisitions and the Reynolds American transaction. Volumes include the whole of the Reynolds American volume, as is the case with our other associated companies. Global drive brands were 2 per cent ahead of last year. • Pre-tax profit was up 20 per cent at £1,886 million, reflecting higher total operating profit and a gain on the disposal of subsidiaries compared to a loss in 2003, while basic earnings per share rose to 52.20p (2003 26.93p). • Adjusted diluted earnings per share at 75.83p were up 10 per cent, benefiting from higher operating profit, the reduced effective tax rate, lower minority interests and the impact of the share buy-back programme. • The Board is recommending a final dividend of 29.2p up 8 per cent, which will be paid on 4 May 2005. This will take the growth in dividends for the year as a whole to 8 per cent. • The Chairman, Jan du Plessis, commented "It has been a good year for the Group, with all regions apart from America-Pacific achieving organic growth at comparable rates of exchange. This demonstrates the fundamental strength provided by British American Tobacco's successful strategy and geographical diversity. Our goal remains to grow earnings per share, on average, by high single figures and to pay out at least half of our earnings in dividends. Our success over the last three years has enabled us to deliver an average total shareholder return of 20.8 per cent a year, compared to 2.4 per cent for the FTSE 100." ENQUIRIES: INVESTOR RELATIONS: PRESS OFFICE: Ralph Edmondson/ 020 7845 1180 David Betteridge/ 020 7845 2888 Rachael Cummins 020 7845 1519 Teresa La Thangue/ Emily Brand BRITISH AMERICAN TOBACCO p.l.c. PRELIMINARY ANNOUNCEMENT - YEAR ENDED 31 DECEMBER 2004 INDEX PAGEChairman's statement 2Business review 5Dividends 10Group profit and loss account 11Statement of total recognised gains and losses 12Interest of British American Tobacco's shareholders 12Segmental analyses 13Quarterly analyses of profit 14Group balance sheet 16Group cash flow statement 17Accounting policies and basis of preparation 19Changes in the Group 20Convertible redeemable preference shares 21Exchange rate effects 21Restructuring costs 22Investment costs written off 22Goodwill amortisation 22Write down of loan to joint venture 23Gain/(loss) on disposal of subsidiaries and investments 23Interest and interest cover 23Taxation 24Earnings per share 24Share buy-back programme 25Group reserves 25Cash flow 26Contingent liabilities 26Annual report and accounts 30 Appendix: Restatement of financial information International Financial Reporting Standards (IFRS) CHAIRMAN'S STATEMENT 2. British American Tobacco's operating profit before goodwillamortisation and exceptional items grew by 2 per cent to£2,830 million at current rates of exchange. At comparable rates ofexchange, the improvement would have been 7 per cent. Adjusteddiluted earnings per share increased by 10 per cent to 75.83p,reflecting the increase in operating profit, the reduced effectivetax rate, lower minority interests and the impact of the share buy-back programme. During the year, 59 million shares have been repurchased,representing 2.8 per cent of the average number of shares in issueduring 2004, at a cost of around £490 million and at an averageprice of £8.35 per share. This brings the total number of sharesbought back since the programme was launched in 2003 to 165 million,accounting for 8 per cent of the total outstanding, at a cost ofalmost £1.2 billion. We expect to restart the share buy-backprogramme following the announcement of these results. The Board has proposed a final dividend of 29.2p per share, bringingthe total for the year to 41.9p, an increase of 8 per cent. Thedividend will be paid on 4 May to shareholders on the Register at11 March. In future, when the Board is considering the interim dividend, itspolicy will be that the interim should represent one third of theprevious year's total dividend, unless there are any special factorsto be taken into account. Group cigarette volumes, including make-your-own stix, were ahead by8 per cent to 853 billion, principally as a result of the inclusionof a full year's sales from the enlarged business in Italy, as wellas five months' results from Reynolds American Inc., formed by thesuccessful combination of R. J. Reynolds and the US businesses ofBrown & Williamson. The completion of this transaction was a landmark event for theGroup in 2004 and the integration of the businesses is progressingwell. Our 42 per cent shareholding is now transparently valued, ataround US$5 billion, and the Group has the benefit of an indemnityfor all existing and future US litigation. The recent Appeals Court decision to reject the US FederalGovernment's US$280 billion claim against the US tobacco industry isobviously encouraging, even though the US Government is seeking afurther appeal. Given the appeals pending in the Engle andPrice/Miles cases, 2005 is set to be an important year for the UStobacco industry's attempts to put these three lawsuits behind it. Excluding merger benefits, there were strong volume performances inRussia, Turkey, India and Pakistan offset by declines in Germany,France, Canada and Japan. The global drive brands, Dunhill, Kent,Lucky Strike and Pall Mall, grew by 2 per cent. Kent's volumeincreased by 10 per cent to a new record high of 33 billion. Chairman's comments cont... 3. As this is my first Chairman's Statement, I would like to remindshareholders that there is more to the Group's strategy for creatingshareholder value than achieving growth, vital though it undoubtedlyis. It is essential that we maintain our balanced approach toachieving growth, improving productivity, managing our business in aresponsible manner and developing a winning organisation. We willcontinue to drive all four elements of our strategy, in order tobuild a sustainable business and achieve leadership of the industry. In terms of productivity, we have continued to meet the commitmentmade two years ago to reduce overheads and indirect costs by£200 million by 2007. Building on the £64 million in 2003, we saveda further £89 million in 2004, principally as a result ofrestructuring throughout the Group. Given our excellent progress, weare now raising our five year target on overheads and indirect coststo £320 million per year by the end of 2007, around a further£170 million per year over the next three years. Additionally, we have reduced our supply chain costs over the lasttwo years by £120 million per year, as a result of factoryrationalisation and logistics savings. We expect to achieve furthersubstantial supply chain savings in the years ahead. On the responsibility front, I am pleased to report that we havemade further progress in the eyes of those organisations prepared toconsider our record in an objective way. The United NationsEnvironmental Programme ranked British American Tobacco fourth outof the top 50 global reporters in its annual survey of best practicein non-financial reporting. The Group was also favourably mentionedin a UK Department of Trade & Industry report entitled 'BuildingBetter Boards' and covering best practice in Corporate Governance. We have maintained our position as the only tobacco company, apartfrom our Malaysian subsidiary, to be included in the Dow JonesSustainability Index. Our website, bat.com, was, once again, rankedas the best in the FTSE 100 by the Financial Times' WebrankingSurvey. We will continue to support tobacco regulation that balances thepreferences of consumers with the interests of society, establishesan open-minded approach to harm reduction as a public health policyand does not undermine the competitive business environment. In the debate over smoking in public places, for example, we willpromote the provision of segregated and properly ventilated smokingareas. These solutions work perfectly well and are a more balancedapproach than the social exclusion of smokers favoured by anti-tobacco campaigners. Chairman's comments cont... 4. In addition to Martin Broughton's retirement as Chairman on 30 June2004, there have been some other changes to the Board. Dr. HaraldEinsmann retired at last year's Annual General Meeting and AdmiralBill Owens had to step down unexpectedly on becoming Chief Executiveof Nortel Networks. On shareholders' behalf, I should like to thankall of them, and most particularly Martin Broughton, for theirservice and to welcome Piet Beyers, Robert Lerwill and Sir NickScheele as new Non-Executive Directors of the Board. It is withgreat sadness that we learned of the sudden death of K S Wong, aNon-Executive Director since 1998, and I extend my deepest sympathyto his family. These will be the last set of full year results presented under UKGenerally Accepted Accounting Principles, as the Group will infuture present its results under International Financial ReportingStandards. Based on the current understanding of the requirements,we have set out a restatement of the key figures for 2004 in theAppendix. I hope this will help to provide an early insight into theimpact of the change. It has been a good year for the Group, with all regions apart fromAmerica-Pacific achieving organic growth at comparable rates ofexchange. This demonstrates the fundamental strength provided byBritish American Tobacco's successful strategy and geographicaldiversity. Our goal remains to grow earnings per share, on average,by high single figures and to pay out at least half of our earningsin dividends. Our success over the last three years has enabled usto deliver an average total shareholder return of 20.8 per cent ayear, compared to 2.4 per cent for the FTSE 100. JAN DU PLESSIS BUSINESS REVIEW 5. Group operating profit for 2004, excluding goodwill amortisation andexceptional items, was 2 per cent higher at £2,830 million, despitethe adverse effect from average sterling rates strengthening againstalmost all currencies over the year. The growth in profit atcomparable rates of exchange would have been 7 per cent, a goodperformance in the face of difficult conditions in some key markets,with excellent results achieved in a number of others and the firsttime contribution from the ETI acquisition. Group cigarette volumes, including the make-your-own cigarette"stix", grew by 8 per cent to 853 billion. The additional volumeswere mainly gained from acquisitions and the Reynolds Americantransaction and, excluding these, the growth would have been 0.4 percent. Volumes include the whole of the Reynolds American volume, asis the case with our other associated companies in India andDenmark. The US volumes, therefore, include seven months from Brown& Williamson and five months from Reynolds American. The four global drive brands increased volumes by 2 per centoverall, including the make-your-own cigarette "stix" which grewsubstantially in Germany. Kent grew by 10 per cent, responding wellto various product innovations, while Pall Mall was up 4 per cent.However, Dunhill and Lucky Strike were affected by markets wheresteep excise increases substantially reduced the overall industryvolumes, and declined by 1 per cent and 6 per cent respectively. Profit from the America-Pacific region was £795 million, a decreaseof £200 million from the same period last year. This was the resultof lower profits in Canada and Japan, further accentuated by thetranslation of US and Canadian results to sterling. Volumes in theregion were up 27 per cent to 131 billion, mainly as a result ofReynolds American, with higher volumes from South Korea more thanoffset by declines in Canada and Japan. The profit contribution from Imperial Tobacco Canada was down£122 million to £342 million due to lower volumes, a deterioratingsales mix and a weakening of the currency against sterling, partlyoffset by lower operating costs. Industry volumes declined despitethe continued strong growth in low-priced cigarettes. In 2004,Imperial has competed more vigorously in this area, leading to asegment share increase from 15 per cent in 2003 to 35 per cent inthe second half of the year. Imperial's share of the premium marketdeclined slightly, but the total segment volume shrunk by more than25 per cent. Despite the strong share growth in the low-pricedsector and du Maurier and Player's remaining the market leaders,overall market share was down. Business review cont... 6. The total contribution from the US domestic business was£295 million (2003 £316 million), up 4 per cent in local currencydespite a one-off benefit included in 2003. Following the ReynoldsAmerican transaction described on page 20, the results for 2004include the contribution from Group subsidiaries for seven months(£149 million) and the Group's share in the profit of ReynoldsAmerican for five months (£146 million). Brown & Williamson's cigarette business profit for the seven monthswas lower than the comparative period as a result of adverseexchange rate movements, lower volumes and the non-recurrence of again on the settlement of certain disputed MSA payments included inthe prior year numbers. Excluding this one-off item, profit atcomparable rates of exchange for the seven months increased as lowersupply chain and marketing costs were only partly offset by lowervolumes and net pricing. The integration of the businesses inReynolds American is progressing well. In Japan, profit was heavily impacted following increasedcompetition and marketing investment. There was also an exciseincrease, which exacerbated the overall market decline, resulting inlower volumes. The Group's market share was slightly lower as,while Lucky Strike maintained share and Kool continued to grow,Kent's share was lower. In South Korea, Dunhill volumes continuedto grow although profit was in line with last year as marketinginvestment was increased. From the first quarter results for 2005,South Korea will be reported as part of the Asia-Pacific region. In Asia-Pacific, regional profit rose by £42 million to £515 millionas strong performances in Australia, New Zealand, Malaysia, Vietnam,Pakistan, India and the duty-free business were only partiallyoffset by reduced profit from Indonesia and Taiwan. Regionalvolumes at 201 billion were 4 per cent higher than last year, withstrong increases in India, Vietnam, Pakistan and Bangladeshpartially offset by declines in Indonesia and Malaysia. Australia continued its impressive profit growth principally throughhigher margins and volumes. Market share increased as a result ofthe strong performance of Winfield and Holiday. Profit in NewZealand was higher as a result of improved margins and reducedcosts, while volumes were maintained despite lower industry volume,resulting in a further increase in market share. In a very competitive environment in Malaysia, profit in localcurrency grew due to price increases and cost savings, althoughvolumes and market share were lower. The significant excise-ledprice increase in the last quarter of the year resulted in somedown-trading and an increase in illicit trade. Business review cont... 7. Vietnam continued to deliver good profit and volume growth,increasing overall market share. Profit and volumes in Indonesiawere still under pressure due to further excise increases, but LuckyStrike continued its strong growth. In Taiwan, volumes roseslightly, principally due to the growth of Dunhill, but results wereadversely affected by higher marketing investment. Excellent profit growth in Pakistan was the result of highervolumes, driven by continued good performances from Gold Flake andJohn Player Gold Leaf, lower costs and an improved sales mix. InBangladesh, profit was slightly lower as increases in volume andmarket share were more than offset by the adverse effect of consumerdown-trading. The Group's associated companies in India continuedtheir good performance, with strong volume growth and increasedprofit in local currency. In Latin America, a decrease in profit of £12 million to£428 million, was mainly the result of many currencies in thisregion weakening against sterling. This masked good performances inlocal currency terms as the region benefited from an improvement inmargins. Regional sales volume at 148 billion was down by 2 billion mainly asa result of increased pressure from growing illicit trade,especially after excise driven price increases in Brazil andArgentina. This was partly offset by the additional volumes fromthe new business acquisition in Peru, good performances in themajority of the Central American markets and growth in Venezuela. Profit in Brazil was slightly down due to lower volumes resultingfrom an excise increase, higher marketing investment and lower leafexport profit. Profit in sterling was adversely affected by thedepreciation of the real against sterling. In Mexico, profit rose as higher prices were only partly offset bylower volumes and increased marketing investment. Higher prices andproductivity initiatives in Argentina led to increased profit,despite lower volumes and the weakness of the currency againststerling. Profit in Chile was down, although volumes were higher reflectingthe success in both reducing illicit trade and counteractingcompetitor activities. In Venezuela, despite the impact ofexchange, profit grew as a result of higher margins and increasedvolumes, the latter driven by recently improved disposable incomelevels and a reduction in imported illegal product. Volumes were upin Central America and the Caribbean, but the results werenegatively affected by weaker exchange rates. Business review cont... 8. In Europe, profit increased by £190 million to £726 million, mainlydriven by the inclusion of Ente Tabacchi Italiani S.p.A. (ETI) inthe results from the beginning of 2004. Excluding ETI, there wasgood profit growth of 10 per cent at comparable rates of exchange.There were excellent performances in Russia, Romania and the SmokingTobacco and Cigars business, together with benefits realised fromcost savings across the board following the closure of factories anda number of reorganisations. These more than offset the impact ofmarkets where excise increases resulted in lower volumes. Regional volumes grew by 7 per cent, reaching 268 billion, primarily due to incremental volume from newly acquired businesses and growth in Russia, partly offset by market related declines in Western Europe. In Italy, the integration has gone very well with profit from the combined business ahead of expectations at £184 million and market share of over 30 per cent. The sale of the Italian tobacco distributor Etinera, as described on page 20, was completed in December, and it is estimated that Etinera contributed £42 million to the Italian profit in 2004. In Germany, cigarette market share was maintained with share growth from Lucky Strike, Pall Mall and Gauloise, while total tobacco market share including cigarette "stix" grew. Group cigarette volume and profit suffered due to a 16 per cent decline of the cigarette market, following excise related price increases. As the Group is well positioned to benefit from the growth in consumer demand for other tobacco products, including cigarette "stix", our total tobacco volumes fell by only 8 per cent. Market share in France remained stable but both profit and volumes declined significantly as excise increases led to a reduction of 21 per cent in the total market size. In Switzerland, profit was higher due to increased margins. Market share also rose, driven by continued growth in Parisienne, although total volumes were slightly lower after an excise increase. In the Netherlands, efficient cost management and price increases contributed to improved profit, while higher margins led to a strong profit growth in Belgium. Business review cont... 9. Russia reported impressive results with profit significantly up and a continued excellent growth in volumes, leading to an increased market share, mainly driven by premium priced Kent. In Romania, the strong profit growth of last year continued as improved margins were achieved through the growth of Kent, Pall Mall and Viceroy. Although the total market declined in Poland, volume and share increases from Pall Mall and Viceroy resulted in good profit growth. Both volumes and profit were slightly down in Ukraine while in Hungary, a massive excise increase led to an 18 per cent reduction in the total market size, adversely affecting volumes and profit, although the Group's substantial market share increased by almost 3 per cent. The Smoking Tobacco and Cigars operations, which will be incorporated into the Group's cigarette businesses during 2005, showed outstanding profit growth, led by price increases and the growth of volumes in all product groups, especially Pall Mall "stix" in Germany. Profit in the Africa and Middle East region grew by £29 million to £366 million with strong performances from South Africa, Nigeria and the Caucasus, partly offset by the cost of continued investment in new markets and a large fall in profit from Zimbabwe. Volumes rose by 7 per cent to 105 billion mainly as a result of the significant growth in Turkey, as well as increases in the Caucasus and Nigeria, partly offset by declines in South Africa and Zimbabwe. In South Africa, higher margins and the growth of Peter Stuyvesant and Dunhill led to good profit growth, as they were only partially reduced by lower volumes overall and increased marketing investment. Volumes were higher in the Middle East and North Africa, with good performances by Viceroy and Craven 'A' in Iraq and Kent in Iran. Increases in Yemen and Egypt were partly offset by volume decline in the Levant. Overall profit was lower as increased costs to support market entries in North Africa offset improvements elsewhere. In Turkey, volumes rose with good growth by Viceroy and Pall Mall. However, investment to build market share continued and the company is still some way from break even. In the Caucasus, both volumes and profit rose. In West Africa, volumes and profits were higher mainly as a result of increased market share through improved distribution and the strong growth by Benson & Hedges and Rothmans in Nigeria. Elsewhere in Africa, volume gains in several markets more than offset the decline in Zimbabwe, but the corresponding profit increases were not sufficient to recover the drop in profit in that country. Non-trading itemsThe above results were achieved before accounting for goodwillamortisation and exceptional items described on page 22 and 23. DIVIDENDS 10. The Directors will be recommending to the shareholders at the AnnualGeneral Meeting to be held on 28 April 2005 the payment on 4 May2005 of a final dividend for the year of 29.2p per ordinary shareof 25p. Valid transfers received by the Registrar of the Company up to11 March 2005 will be in time to rank for payment of this dividend.Ordinary shares go ex-dividend on 9 March 2005. The following is a summary of the dividends declared for the yearsended 31 December 2004 and 2003. 2004 2003 pence per pence per share £m share £m(a) On ordinary shares:Interim 2004 paid 15 September 2004 12.7 271 2003 paid 15 September 2003 11.8 247Final 2004 payable 4 May 2005 29.2 617 2003 paid 27 April 2004 27.0 552 ----- --- ----- --- 41.9 888 38.8 799 ===== === ===== === (b) On convertible redeemable preference shares:Interim 2003 paid 15 September 2003 11.8 14Final 2003 paid 27 April 2004 27.0 33Amortisation of discount 8 18 ----- --- ----- --- 8 38.8 65 ===== === ===== === The amortisation of discount on preference shares reflects thedifference between the share price at the date of the Rothmanstransaction and the redemption price in June 2004, which wasamortised over the period to the redemption date. GROUP PROFIT AND LOSS ACCOUNT 11. For the year ended 31 December 2004 2003 £m £mREVENUE Subsidiary undertakings 31,811 24,151Share of associates and joint ventures 2,444 1,471 ------ ------ 34,255 25,622 ====== ====== PROFIT Subsidiary undertakings 1,794 1,777after charging: restructuring costs (206) (437) investment costs written off (50) goodwill amortisation (474) (405)Share of associates and joint ventures 144 75after charging: restructuring cost (125) goodwill amortisation (37) write down of loan to joint venture (87) ------ ------Total operating profit 1,938 1,852Gain/(loss) on disposal of subsidiaries 147 (72)Gain on disposal of fixed asset investments 38 ------ ------Profit on ordinary activities before interest 2,123 1,780Net interest - subsidiary undertakings (234) (209)Share of associates' and joint ventures' net interest (3) (4) ------ ------Profit before taxation 1,886 1,567Taxation (662) (779) ------ ------Profit after taxation 1,224 788Minority interests (126) (157) ------ ------Profit for the year 1,098 631Dividends and other appropriations (896) (864) ------ ------Retained profit/(loss) 202 (233) ====== ======Earnings per share: Basic 52.20p 26.93p ====== ====== Diluted - unadjusted 50.93p 26.69p ====== ====== Diluted - adjusted 75.83p 69.21p ====== ====== See notes on pages 19 to 30. STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 12. For the year ended 31 December 2004 2003 £m £m Profit for the year 1,098 631 Differences on exchange 11 206 Gain on disposal of subsidiaries 918 ------ -----Total recognised gains related to the year (below) 2,027 837 ====== ===== INTEREST OF BRITISH AMERICAN TOBACCO'S SHAREHOLDERS For the year ended 31 December 2004 2003 Restated £m £m Balance 1 January 4,483 5,185 Accounting policy change (122) (107) ------ ------ 4,361 5,078 Total recognised gains related to the year (above) 2,027 837 Issue of shares - share options 4 5 Dividends and other appropriations: Ordinary shares (888) (799) Convertible redeemable preference shares (47) Amortisation of discount on preference shares (8) (18) Purchase of own shares (492) (698) Consideration paid for purchase of own shares held in Employee Share Ownership Trusts (72) (58)Consideration received on the exercise of options over own shares held in Employee Share Ownership Trusts 32 15Credit in respect of employee share schemes 32 28 Goodwill reinstated on disposal of subsidiaries 216 Other movements 8 18 ------ -----Balance 31 December 5,220 4,361 ====== ===== See notes on pages 19 to 30. 13. SEGMENTAL ANALYSES The analyses below for the year ended 31 December include theGroup's share of associates and joint ventures. Volumes* Net revenue 2004 2003 2004 2003 bns bns £m £m America-Pacific 131.1 103.2 3,083 3,562Asia-Pacific 200.5 192.2 1,714 1,765Latin America 147.6 149.5 1,276 1,309Europe 268.1 249.8 4,990 3,502Africa and Middle East 105.3 98.2 1,347 1,289 ------ ------ ------ ------ 852.6 792.9 12,410 11,427 ====== ====== ====== ====== OPERATING PROFITAmerica-Pacific 795 995Asia-Pacific 515 473Latin America 428 440Europe 726 536Africa and Middle East 366 337 ------ ------ 2,830 2,781Restructuring costs (331) (437)Investment costs written off (50)Goodwill amortisation (511) (405)Write down of loan to joint venture (87) ------ ------ 1,938 1,852 ====== ====== Operating profit, before exceptional itemsand goodwill amortisation, restated at comparablerates of exchange 2,981 2,781 ====== ====== *Volumes includes make-your-own cigarette "stix", as well as cigarettes. Comparative numbers have been restated, where applicable. Net revenue includes £1,646 million (2003 £857 million) in respect of associates and joint ventures. The net revenue analysis is based on the external sales in each region less duty, excise and other taxes. The impact of the ETI and Reynolds American transactions on the above results are described on page 20. QUARTERLY ANALYSES OF PROFIT 14. The figures shown below have been produced using average rates ofexchange for the years ended 31 December 2004 and 2003 respectively, withthe previously reported quarterly figures for 2004 restated using averagerates for the full year. 3 months to 31.3.04 30.6.04 30.9.04 31.12.04 £m £m £m £m America-Pacific 188 203 212 192 Asia-Pacific 122 129 144 120 Latin America 89 100 120 119 Europe 151 188 227 160 Africa and Middle East 88 89 93 96 ---- ---- ---- ---- 638 709 796 687 Restructuring costs (5) (36) (110) (180) Investment costs written off (50) Goodwill amortisation (119) (119) (132) (141) ---- ---- ---- ----Total operating profit 514 554 554 316 Gain on disposal of subsidiaries 127 20Gain on disposal of fixed asset investments 38 ---- ---- ---- ----Profit on ordinary activitiesbefore interest 514 554 681 374 Net interest - subsidiary undertakings (63) (66) (73) (32) Share of associates' and jointventures' net interest (2) (1) ---- ---- ---- ----Profit before taxation 451 488 606 341 ==== ==== ==== ==== Quarterly analyses of profit continued 15. 3 months to 31.3.03 30.6.03 30.9.03 31.12.03 £m £m £m £m America-Pacific 190 284 251 270 Asia-Pacific 119 109 130 115 Latin America 91 125 115 109 Europe 136 126 182 92 Africa and Middle East 84 74 95 84 ---- ---- ---- ---- 620 718 773 670 Restructuring costs (281) (22) (134) Goodwill amortisation (100) (102) (101) (102) ---- ---- ---- ---- 520 335 650 434 Write down of loan to joint venture (87) ---- ---- ---- ----Total operating profit 520 335 650 347 Loss on disposal of subsidiaries (62) (10) ---- ---- ---- ----Profit on ordinary activities before interest 520 335 588 337 Net interest - subsidiary undertakings (51) (47) (55) (56) Share of associates' and joint ventures' netinterest (1) (1) (1) (1) ---- ---- ---- ----Profit before taxation 468 287 532 280 ==== ==== ==== ==== GROUP BALANCE SHEET 16. 31 December 2004 2003 Restated £m £m Fixed assets Intangible assets 7,135 8,012Tangible assets 2,232 2,578Investments in associates and joint ventures 1,801 327Other investments 400 396 ------ ------ 11,568 11,313 ------ ------ Current assets Stocks 2,145 2,582Debtors 1,985 2,571Current investments 85 108Short term deposits and cash 1,893 2,283 ------ ------ 6,108 7,544 ------ ------TOTAL ASSETS 17,676 18,857 ====== ====== Capital and reserves Share capital 535 550Share premium account 37 33Merger reserves 3,503 3,748Capital redemption reserves 72 57Other reserves 1,491 565Profit and loss account (418) (592) (after deducting cost of own shares held in Employee Share Ownership Trusts of £182 million (2003 £187 million)) ------ ------Shareholders' funds (including non-equity interests) 5,220 4,361Minority shareholders' equity interest 196 225 ------ ------ 5,416 4,586 ------ ------ Other liabilities Provisions for liabilities and charges 1,354 1,541Borrowings 7,097 7,610Creditors 3,809 5,120 ------ ------ 12,260 14,271 ------ ------TOTAL FUNDS EMPLOYED 17,676 18,857 ====== ====== See notes on pages 19 to 30. GROUP CASH FLOW STATEMENT 17. For the year ended 31 December 2004 2003 Restated £m £m Net operating cash flow from subsidiary undertakings (note 1) 2,596 3,067Dividends from associates 81 46 ------ ------Net cash inflow from operating activities 2,677 3,113Returns on investments and servicing of finance (417) (424)Taxation (703) (709)Capital expenditure and financial investment (265) (422) ------ ------ Net cash generation 1,292 1,558Disposals less acquisitions 91 (1,820)Equity dividends paid (823) (773) ------ ------Cash flow before use of liquid resources and financing 560 (1,035)Management of liquid resources 375 (303)Financing (note 2) (889) 1,464 ------ ------Increase in cash in the period 46 126 ====== ======Reconciliation of net cash flow to movement in net debt (note 3)Increase in cash in the period 46 126Decrease/(increase) in debt 361 (2,200)(Decrease)/increase in liquid resources (375) 303 ------ ------Change in net debt resulting from cash flow 32 (1,771)Net debt acquired on purchase of subsidiaries (35)Other changes 2Differences on exchange 66 (34) ------ ------Movement in net debt in the period 100 (1,840)Net debt at 1 January (5,219) (3,379) ------ ------Net debt at period end (5,119) (5,219) ====== ====== NOTES TO THE GROUP CASH FLOW STATEMENT 18. 2004 2003 Restated1) Net operating cash flow from £m £m subsidiary undertakings Operating profit 1,794 1,777Depreciation 372 477Goodwill amortisation 474 405Decrease in stocks 40 179Decrease/(increase) in debtors 3 (52)(Decrease)/increase in creditors (26) 97(Decrease)/increase in provisions (86) 157Other 25 27 ------ ------Net operating cash flow from subsidiary undertakings 2,596 3,067 ====== ====== 2) Financing Proceeds from issue of shares 4 5Purchase of own shares (492) (698)Employee share ownership trusts - purchase of own shares (72) (58) - proceeds on exercise of options 32 15(Decrease)/increase in debt (361) 2,200 ------ ------ (889) 1,464 ====== ====== Differences Cash Other on 1.1.04 flow changes exchange 31.12.043) Analysis of £m £m £m £m £m net debt Cash and bank balances 517 478Overdrafts (172) (121) ------ ------ 345 46 (34) 357Term borrowings (7,366) 336 127 (6,903)Finance lease obligations (72) 25 (26) (73)Short term deposits 1,766 (353) 28 (26) 1,415Current investments 108 (22) (1) 85 ------ ------ ------ ------ ------ (5,219) 32 2 66 (5,119) ====== ====== ====== ====== ====== NOTES 19. ACCOUNTING POLICIES AND BASIS OF PREPARATION The financial statements comprise the audited results for the years ended 31 December 2004 and 31 December 2003. The audited Group results have been prepared under the historical cost convention and in accordance with the Companies Act 1985 and applicable UK accounting standards. Accounting Standard FRS17 on Retirement Benefits was issued in 2001 and represented a radical change in accounting for pension costs and other post-retirement benefits. During 2002, the Accounting Standards Board decided to allow deferral of full implementation of FRS17 until 2005, while the International Accounting Standards Board considers revisions to its standard on employee benefits.